MAMA - NASDAQ

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Mama’s Creations Third Quarter Fiscal 2024 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. This conference is being recorded today December 12, 2023, and the earnings press release accompanying this conference call was issued after the market close today. On our call today is Mama’s Creations’ Chairman and CEO, Adam L. Michaels; and CFO, Anthony Gruber. Before we get started, I’d read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meanings of the federal securities laws regarding Mama’s Creations. Forward-looking statements include, but are not limited to, statements that express the Company’s intentions, beliefs, expectations, strategies, predictions, or any other statements relating to its future earnings, activities, events or conditions. These statements are based on current expectations, estimates and projections about the Company’s business base in part on assumptions made by Management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may and are likely to differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors discussed from time-to-time in this report and in other documents, which the Company files with the U.S. Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to factors beyond the Company’s control. Matters that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the loss of key management personnel, availability of capital and any major litigation regarding the Company. In addition, throughout today’s call, the Company may refer to adjusted EBITDA, a non-GAAP financial measure, which it believes better reflects the performance of the business on an ongoing basis. A reconciliation of adjusted EBITDA to its most directly comparable GAAP financial measure is included in today’s earnings release, which is available on the Mama’s Creations website under the Investors tab. And finally, this conference call contains time-sensitive information that reflects management’s best analysis only as of the date and time of this conference call. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this conference call. At this time, I’d like to turn the floor over to Chairman and CEO, Adam L. Michaels. Adam, the floor is yours.

Thank you, operator, and thank you to everyone for joining us today. I’d like to welcome you to our third quarter fiscal ‘24 financial results conference call. I’m very excited to be speaking with you all today, coming out of what was another strong quarter of consistently improving top and bottom line growth, representing even more evidence of what we believe is Mama’s true potential over the long term. We continued our reliable cadence of operational execution in the third quarter with strong double digit revenue growth and the year-over-year expansion of our gross margin profile by 460 basis points to 30.1%, validating our strategy and internal focus on our 3 Cs: Cost, Controls, and Culture. Both revenue and net income were up over 15% consecutively from the second quarter of fiscal ‘24, and we are now beginning to see the cumulative results from our efforts over the last year, ranging from our acquisition of CIF to formalizing and improving countless processes throughout the Company. Taken together, I believe we remain on track to continue our cadence of planned, persistent, and profitable growth in the years to come. Our team has worked together to drive a significant turnaround in the business in the last year, changing everything, but no, including the name. We made countless small changes at every level of the Company, from operations, to logistics, to administration, implementing operational KPIs under the mantra of ‘what gets measured gets improved’. The results can be clearly seen in our gross margin profile, which improved from 11.9% in Q2 fiscal ‘23 to 30.1% today, as well as in our bottom line with our net income transforming from negative $700,000 in Q2 fiscal ‘23 to over $2 million today. Looking ahead into the next fiscal year, we see even more opportunities to further margin enhancement, particularly by leveraging strategic CapEx investments to build new in-house capabilities earlier in the value chain, improving automation at our production facilities and further building the capacity to support potential new Tier 1 national customers. Taken together these initiatives will position us to invest surplus gross margin to into higher and more profitable trade promotion, which will serve as the rocket fuel for the next leg in our revenue growth trajectory. Early tests in trade promotion have driven promising results, and we look forward to right sizing our trade promotion investments in the quarters to come. At its core, our strategy and growth are being fueled by macro trends that continue to point in our favor. We are well positioned to capture share driven by the rapid shift in consumer preference towards deli prepared foods, which as a sector continued to grow in both price and volume. With the effects of the pandemic normalizing, food retailers are now investing heavily to increase space for the fresh-prepared, grab-and-go options, to differentiate themselves and appeal to the next generation of shoppers, capturing share from restaurants with healthy, high quality meals and creative new flavors at a favorable price point relative to takeout. Research from the Food Marketing Institute, FMI reports Gen

Thank you, Adam. Revenue for the third quarter of fiscal 2024 increased 11.5%, $28.7 million as compared to $25.7 million in the same year-ago quarter. The increase was largely attributable to volume gains driven by same-customer cross-selling, the acquisition of new customers and successful pricing actions. Gross profit increased 31.6% to $8.6 million, or 30.1% of total revenues, in the third quarter of fiscal 2024, as compared to $6.6 million, or 25.5% of total revenues, in the same year-ago quarter. The increase in gross margin was primarily attributable to successful pricing actions, the normalization of commodity costs and improvements in procurement, manufacturing and logistics efficiencies. Operating expenses totaled $5.9 million in the third quarter of fiscal 2024, as compared to $5.1 million in the same year-ago quarter. As a percentage of sales, operating expenses increased in the third quarter of fiscal 2024 to 20.7% from 19.7%. Operating expenses, as a percentage of sales, increased due to the addition of several new key hires, who brought new and differentiated capabilities to the organization. This figure includes a tripling of our marketing expenditures this quarter as we achieved many firsts for the Company and build out a best-in-class marketing program. Net income for the third quarter of fiscal 2024 increased 83% to $2 million or $0.05 per diluted share, as compared to a net income of $1.1 million or $0.03 per diluted share in the same year ago quarter. This quarter’s net income totaled 7% of revenue, in line with management expectations in the mid-single-digit range. Adjusted EBITDA, a non-GAAP term, increased 67.6% to $3.5 million for the third quarter of fiscal 2024, as compared to an adjusted EBITDA of $2.1 million in the same year-ago quarter. Cash and cash equivalents as of October 31, 2023, were $5.6 million as compared to $4.4 million as of January 31, 2023. The increase in cash and cash equivalents was driven by $1.5 million in cash flow from operations in the third quarter of fiscal 2024, $1 million of which was used to pay down the Company’s debt. As of October 31, 2023, total debt stood just under $10 million. Looking ahead, we believe that our normalized gross margin profile will continue to hover in the high-20% range. Our long-term goal, leveraging strategic CapEx investments, procurement efficiencies and continuous operational efficiencies would be targeting margins consistently maintained in the low-30% range, while rightsizing our trade promotion investments. One fact that I’d like to call out that we are quite proud of, is that top of the -- on top of the 460 basis-point improvement in gross margins, we still were able to double our trade investment in the quarter. Turning to net income. While we continue to target mid-single-digit net income margins, our long-term goal would be to improve to approximately 10%, with adjusted EBITDA margins in the teens percentage range. This completes my prepared comments. Now, before we begin for our question-and-answer session, I’d like to turn the call back to Adam for some closing remarks. Adam?

Thank you, Anthony. Our ambition is to fortify and expand upon the robust groundwork and strategy presented here today, positioning us to continue to drive profitable growth and margin expansion. We will seek to reinvest our surplus gross margins as rocket fuel for our trade promotion budget, which we expect will ultimately snowball into increasingly robust revenue growth. Looking ahead, our near-term sales goals will be achieved by launching highly incremental products to further increase the SKUs per customer, introducing our products to new Tier 1 customers via our supercharged sales team, putting in place high ROI trade promotion programs to accelerate existing product velocities and further enhancing our margin through continuous operational improvements at every level of the organization. We believe that this approach will not only position Mama’s Creations as a one-stop shop deli solution provider but drive sustainable shareholder value creation over the long term. With that, I’ll turn it over to the operator to begin our question-and-answer session. Operator?

[Operator Instructions] Our first question comes from the line of Ryan Meyers with Lake Street Capital. Please proceed with your question.

Hey guys. Thanks for taking my questions. Congrats on another solid quarter. Obviously, it looks like we saw sequential revenue growth once again, along with sequential EBITDA growth. Just wondering if you can comment on how we should be thinking about Q4 and what sort of seasonality we should be expecting?

Yes. Thanks, Ryan. Great team effort. Yes, I think like we spoke about last year and before Q4 is usually our softest quarter. So I think not many people are shopping on Thanksgiving Day and Christmas Day, and hopefully, people get to take some vacation. So, we do know, like you saw last year, it tends to be a little softer. I think we’re still shooting for -- we said we’re going to continue to grow faster than the market and continue to gain share. We’re seeing that in the high single digits now between all of that, and we think we could continue to beat that.

Got it. That’s helpful. And then just wondering if you can comment a little bit more on the new sales hire, what kind of productivity have you seen out of them, and then maybe if you can quantify how much new business they generated during the quarter? And then, if you have any sort of comments on how much business you think they can generate next year, whether it’s in terms of new customers or just overall revenue growth, it would be helpful to understand.

No, it’s actually incredible, Ryan. I wish everybody on this call could have joined me. So last week, we had our sales meeting. Our entire sales team and the extended team got together to plan out next year and talk about customers. It was -- yes, you’re going to ask the questions about the numbers, and I’m totally great with that, and I’ll answer that, but it’s the culture, the energy that we’ve never had before. Literally, when I started, we had one salesperson. So, that was great and to see that excitement. From what’s going to happen, everything is going to happen. So brought in this great guy, Art, who has lived his whole life in the C store. We have a whopping total of $0 in the C store, we’re going to open that up next year, Andrew, with e-commerce, the work that Lauren Sella is overseeing in all of our marketing efforts. These are real capabilities that we’ve never had before as a company, and I expect to see significant growth next year. Again, I continue to believe we’re going to [Technical Difficulty] is and continue to grow share. These folks are going to help us do that more confidently and at a higher rate than we would have without them. So new customers, new channels are going to be incredible. And again, Nick, who is leading all of our trade programming, we didn’t have those capabilities before. The level of analysis we’re doing now on ROIs on every single program we’re doing is unheard of in this company [Technical Difficulty]. So we know exactly what we’re doing. We know what to do more of, and equally because you’re not going to get it all right. If you get it all right, you’re not trying hard enough. We know which ones aren’t going to work and why we’re not going to double down on them next year. So, it’s been perfect. It has actually exceeded my expectations, this whole sales team coming together, and I love it.

That’s great to hear. And then last question for me. I know average SKU per customer was 7 last quarter. Did that trend higher during the quarter? And what is that currently standing at?

Yes, it’s good. So a year ago this time, it was at 6. We actually got it up to -- it’s a little over 7 now. So what’s happening is we’re seeing new customers come in. You know when new customers come in -- remember, this is a weighted average. So when a new customer comes in and like we said, they usually come in with just a couple of SKUs, ironically, that suppresses the average items carried. And even we overcame that and still got over 7 for that. The other thing is some of the customers that did really well this quarter tended to have fewer items because they had much more volume to it. But we continue to make progress. We did better than we did before, and I expect to do even more with our new sales team.

Our next question comes from the line of Eric Des Lauriers with Craig Hallum. Please proceed with your question.

Great. Thank you for taking my questions. And congrats on another really impressive quarter here. My first question is a bit of a follow-up to the last question. So, we’ve seen year-over-year revenue growth accelerate from 5.9% in Q1 to now 11.5% in Q3. I was wondering if you could just help us understand the drivers of that acceleration. Obviously, there’s a number of things going on here. Presumably, increasing SKUs per store is having the biggest impact there. But if you could just kind of help flesh that out a bit? Are there any sort of velocity changes or new geographies to call out in addition to the increasing SKUs per store? Thanks.

Yes, absolutely. So, a couple of things. So first, what’s great is both of our major businesses, right, the legacy Mancini business and the new Creative Salads business, both of them grew double digits, which was great. So this is a -- we’re all rowing the boat together. That was great to see. Actually, a super majority of the growth was volume-driven, which is awesome. So I was really happy to see that. So this is actual real sales. This is not a pricing thing, even though we were able to improve our gross margins in price. So we saw that as well. We did get to see great new customers that brought in, one that I’m really excited about, that I’m sure you guys know Albertsons. We just opened up a whole new division in North Cal, which is one of their biggest divisions with some of our chicken products. Again, this is something that I love to see. So we had Albertsons. We’ve been -- and Albertsons has been our customer for a while on the legacy Mancini side. What I told you guys is we have customers, now let’s leverage all these Creative Salads products, all the chicken or the paninis. We got this great with DeMoulas now, getting in, again, a legacy customer. We now have paninis that are literally flying off the shelf. It’s incredible. Cub Foods, Holiday Market. So a lot of new customers, exactly to your point. And then we just spoke about AIC getting more items into the stores. And I think one thing that’s been great, and I mentioned earlier, the work that Lauren Sella is doing as our Chief Marketing Officer, we’ve been testing, right? Test, learn, test. Testing a number of programs this past quarter. They are seeing very promising results. It’s the marketing that is going to help us from a velocity standpoint. If you’re in the -- actually, if you’re anywhere on the East Coast, I don’t know if you guys know

That’s great to hear. I appreciate that color. It sounds like everything is moving in the right direction here.

Knock on wood.

Knock on wood. Yes. My next question is on the margin impacts from CIF. If I look back, it looks like that was sort of expected to have 100 to 200 basis-point potential gross margin improvement here. And I’m just wondering how to sort of combine that information with your sort of target to keep gross margins ideally in the high-20s and sort of reinvest in trade promotion. Is this 1 to 2 percentage points incremental to that high-20s, or is this now -- we’re staying at high-20s and now we essentially have another 100 to 200 basis points of surplus margin to reinvest?

Yes. So first, I need to apologize for overdelivering on the high-20s, I’m sorry about that. But I’ll keep disappointing. I think that there’s two or three things. So I think the first thing is the CIF acquisition has been tremendous. Ron Loeb, Jeff Siegel, the whole team, I could go through everybody, has just done an amazing job and we’re one team now. We don’t even talk about CIF anymore, we’re one team. The second thing is, yes, we absolutely see the 1 -- like we said, the 1 to 2 points. Again, we have over delivered our thesis on what I brought to the board on the opportunities. I feel great about saying that. The third, I think, is even more important than numbers, the talent that we brought in, the folks. So there are folks from CIF that had capabilities that we didn’t have before. We’re back in our freight. I’ve mentioned to you freight. When we first started 200 basis points, 280, as crazy as numbers are, we got another 50 points, 50 basis points of improvement this quarter. That’s real capabilities that Rebecca brought to the team. What we’re able to do in accounts receivables, it is -- yes, it’s great that the CIF acquisition got us more sales and got us more margin, the real secret is it got us great talent and real capabilities in our business, and that’s what I’m proudest of.

That’s great to hear. My last couple of questions. I guess, first is just a clarifying question. Did you say earlier -- I think it was on the previous question, that you had hired a sort of a new head of the C-store channel. I just wanted to clarify that first.

We did. Yes. Art is just killing it, really already -- and he’s only been here a month or two and already connecting with the right brokers, the right distributors. The energy that he brought to the meeting -- he actually pushed me. He was yelling at me that I was calling the number too conservatively. How is that? It was like his first week here, and he’s already calling me out, which I love. So yes, we have a new guy, they’re running C-stores, e-commerce now. We are building a team that’s going to win.

Yes. So, you have this new C-store hire. You press released sort of launch of direct-to-consumer e-commerce, I think you called out sort of the club opportunity in the press release and then mentioned mass market in your prepared remarks here. Just kind of help us like frame these opportunities here. I think you said C-store could even drive near-term results here. How should we think about these, I guess, one, just in terms of potential scale relative to the size of your sort of traditional grocery channel? And then perhaps in terms of whether it’s priority or just when we might be able to see some potential results here? I’m just trying to understand these opportunities as they come up. Thank you.

Yes. Look, I think Art puts enough pressure on himself as does everyone on the team. We’re not looking -- so yes, for our fiscal ‘25 plan, we built a bottom-up model. Obviously, we won’t be sharing that bottoms up customer by customer model, but we have it. Let’s put this into perspective. We’re pretty much not in 5 of the top 10 customers. The 3 biggest customers in this country, Target, Walmart and Banner Kroger, we’re not in. So I think that should put in perspective for us the level of distribution. And again, I’m proud with over 8,000 points of distribution, very proud of that. Over $100 million business, that’s wonderful. We’re in like still probably -- I don’t even think we’re in the bottom of the first. We’re probably in like -- maybe we have one out in the top of the first. That’s how early we are in the process. So I think there’s tremendous value. But again, we’re not going to rush. I’m here for the long haul. Anthony is here for the long haul, and we’re going to do things very organized. We’re going to do it very profitably. So with that, look at the growth that we’re having and the profits are just getting better -- the business is getting healthier and healthier. I think if you’d look at our peers or in my old world of Mondelez, all the companies that I would look at to acquire, yes, it’s super easy to get growth. I mean we’re losing $100 billion, but don’t worry about it, someone else will pay for it. We are growing smartly. We’re growing profitably, and we’re accelerating our profit. That’s the type of growth that you’re going to see from this business.

Well, it’s certainly very impressive what you’ve all been able to do over the past year or so and certainly looking forward to as many opportunities to come. Thanks for taking my questions.

Thanks a lot Eric.

Our next question comes from the line of Howard Halpern with Taglich Brothers. Please proceed with your question.

Congratulations, guys, another great quarter.

Thanks, Howard.

Scanning the Q that’s out there I saw, could you describe what was the primary driver with the growth in the Midwest year-over-year and sequentially? Because it seems like it was a nice bump in the quarter.

Yes. I know it was great. And probably the only CEO that’s happy to see that we’re losing share on the East Coast because we’re doing so much better on the Midwest and the West Coast. That was primarily 2 or 3 things. One, Costco continues to get stronger and stronger for us. And I spoke about this earlier around this trifecta. So first, this year, we got the largest order ever. It’s actually shipping now in the Northeast over $1 million order. Two, we’ve had multiple rotations now in some regions. We’ve already been this year already Northeast, Midwest, Pacific Northwest, L.A. region, I’m sure I’m missing others. And then the third, and I’m super excited. We’re producing it now. You’ll see it next month if you’re out in the West Coast, where we got our sausage and peppers into the L.A. region of Costco, which is wonderful. So this is the first time ever we’ve had a non-meat ball product in Costco. So, we hit the triple threat this year, which was awesome. Directly to your question, Costco, we had another rotation in the Midwest [Technical Difficulty] Midwest sales. Roundy’s, I believe, is also in the Midwest, and we continue to do well at Roundy’s, which is, if you guys know a Kroger Banner underneath the Kroger Banner is Roundy’s. So those are the answers, Howard.

Okay. And what are you seeing in terms of how you talk about the grocery stores building out this part of their store? Is there an opportunity for the ball in a cup to go in that section of grocery stores going forward?

Well, you must be speaking to Scott Schafer on our sales team. So, actually, it’s great that you mentioned that. So Jewel is an Albertsons banner. Jewel is crushing it with our Meatballs in a Cup. So just as a reminder, we’ve developed Meatballs in a Cup as a [Technical Difficulty] everybody out, so he gets all of the production. But we actually sold in to Jewel -- I shared with the leadership team the other day, we actually got an end cap. So in a refrigerated end cap, which is really hard to get, and they had both our beef meatballs and our turkey meatballs on that end cap. So yes, Howard, directly to your point, while the intention was to have the cups in C-store only really, they’re actually starting to do well in the grocery space, with Jewel and with others. And then also, there’s a lot of interest from the club channel for a multipack, which we’re investigating as well. So it’s happening, Howard, it’s great.

And all that eventually too could lead to increased volumes on the e-commerce side?

Yes. We got to get -- actually Lauren, see that. Now Lauren must have been happy now, too. So yes, if you go on to our website, shop.mamamancinis.com, you could actually get our Meatballs in a Cup on our website. So yes, it should help drive e-commerce sales as well.

Okay. And just SG&A question. Are we now at a new -- the new level -- is this sufficient to help fuel that double-digit growth that you hopefully will achieve over the next few years?

Yes. You know what, let’s see, I don’t want -- and I say this respectfully, with sitting next to Anthony, my CFO, I don’t want necessarily Anthony to be driving what capabilities we need. Obviously, we’re going to manage the business well and we’re going to grow and we’re going to maintain our profitability. But I want to bring in great talent, and I’m never going to [Technical Difficulty] don’t make decisions -- we, as a leadership team, make the decisions on who to bring in, but I want to bring capabilities in. That said, we had a great year this year. You see the talent we brought in from sales and marketing and logistics. I think we’re down to maybe one or two more people that could really accelerate our business. So I think we’re mostly there. But I want to bring in the right talent. I want to also [Technical Difficulty] have the right amount of marketing. You know Howard well that marketing is below the line number. That means it’s going in a sort of “hurt” OpEx. I want to do what’s right for this company, and I don’t want to let short-term thinking influence our long-term aspirations. We’re going to be a $1 billion company, and we need the marketing to do that. But I promise you, I’m a big talker, but I get scared faster than you guys do. So, I will make sure that we continue to stay profitable and continue to grow.

Okay. Well, thanks and keep up the great work.

Thanks so much, Howard.

Thank you. This concludes our question-and-answer session. And I will now turn the call back to Chairman and CEO, Adam L. Michaels, for his closing remarks.

Thank you, operator. And thank you again to each of you for joining us on today’s earnings conference call. We look forward to continuing to update you on our progress as we strive to deliver value to my fellow shareholders and execute on our vision of becoming a national one-stop shop deli solution provider. Thank you.